Splitting Dividend Between Common and Preferred Stockholders

Question

Saratoga Group has the following items in their current balance sheet:

Common Stock 1,500,000 shares authorized, 200,000 issued                $1,600,000
Capital Surplus on Common Stock                                                      $2,400,000
Treasury Stock on Common   30,000 shares                                           $300,000
Cumulative Preferred Stock 1,600,000 authorized
200,000 issued [10%] $25 par                                                            $8,000,000
Retained Earnings                                                                            $40,000,000

1.    Saratoga Group wishes to announce a total cash dividend of $6,000,000. How is this dividend to be split between the common and preferred stockholders?
2.    Suppose Saratoga Group was four years in the arrears in paying dividends to preferred stockholders: then what is the dollar amount of the preferred and common shareholder dividend to be paid this current year?
3.    How many shares of Saratoga Group common stock are outstanding?
4.    How many shares of Saratoga Group preferred stock are outstanding?
5.    What was the average selling price of Saratoga Group’s preferred stock shares?
6.    If Saratoga Group announces a 4 for 1 stock split of the cumulative preferred then what is the new total amount of the preferred stock?
7.    If Saratoga Group were to provide for a 10% common stock dividend, then how many new shares are to be mailed to existing shareholders?
8.    Assume in question [8] the market price of the common stock was $35 at the time of the stock dividend announcement. What is the journal entry to record the stock dividend?
9.    If 30,000 shares of Treasury Stock on Common were sold to the public for $600,000 then what would be the journal entry to record this transaction?

Summary

The question belongs to Finance and it discusses a scenario where a company wants to announce dividend. Various questions about the splitting the dividend between common and preferred stockholders have been answered in the solution in detail.

Total Word Count 129

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